Wealth Preservation Trusts

Or 'if it looks oo good to be true it usually is'

There has been much discussion in the press recently about so called property or wealth preservation trusts designed to protect an individual’s property if they need to go into care. At the one extreme, there are some very slick salesman selling these schemes as the answer to all your woes at exorbitant prices. At the other extreme there are organisations like Age UK warning people of the dangers of them. So, do they work?

The Care Rules say that if you do not have sufficient income to pay for your care then your capital would be used down to a final figure of £14,250. The idea behind such trusts is to give the property away so it does not form part of your assets for assessment purposes. You could always give the property direct to the children but if your children then become divorced or bankrupt you may well find yourself evicted from your own home. Putting the property into a trust protects from this happening. But will the trust protect against long term care?

The first thing to note is that the so called "7 year Rule" does not apply here. This only relates to inheritance tax and gifts of this nature would not work for inheritance tax anyway. For the purposes of community care it is the ‘Sixth Month Rule’ and the ‘Predominant Reason Rule’. The Sixth Month Rule says if you make a gift and go into care within six months then the Local Authority would be able to bring the property back into your estate. If you go into care after six months from the date of the gift the only way the Local Authority can attack the trust is on the basis of the Predominant Reason Rule i.e. what was the real reason behind setting up the trust? Obviously the longer the time between the gift being made and the person needing care and the healthier you were when you made the gift the better.

It is therefore crucial to understand the reason for setting up the trust in the first place. Organisations who advertise these schemes as a way of avoiding paying care fees are simply giving ammunition to Local Authorities to challenge them down the line. It is therefore crucial that you get proper independent legal advice in this area. One of the first things we encourage couples to do is to set up Wills designed to protect assets should the survivor need care. These are a lot less controversial and cannot be challenged by Local Authorities on the grounds set out above.